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Will the LTD Corp be affected by a business partner filing personal bankruptcy?

I have setup a business in BC (LTD.Corporation) with a business partner 4 years ago. We each hold 50% of the shares. A year ago, she has loaned $10000 to the company because we need to expand our business. Now, she has some financial problems and she is going to file personal bankruptcy. Will the Licensed Insolvency Trustee seize the assets for her portion from the company and demand the company to repay the $10000 that the company owes her once she files bankruptcy?

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One Response to “Will the LTD Corp be affected by a business partner filing personal bankruptcy?”

Barton Goth GCO Bankruptcy Trustees said...

This is an interesting situation and there are really 2 things that come out of this.

First, the shares your partner owns are a non-exempt asset, meaning that if your partner files bankruptcy they vest in the trustee, and the trustee has a legal obligation to value the company and try to sell the shares for the value determined. The most natural thing would be to see if the debtor (your partner) could buy them back, or approach you to buy them back.

The second thing, that will indirectly relate to the first, is the loan of $10,000. This is also considered an asset of the indiviual that is non-exempt and vests in the trustee. As such the trustee will contact the company and seek payment as these monies ultimately need to be distributed amoung the creditors. Now the reason it relates to point one is that this loan is a debt owed by the company and something that as long as it is legitamite will be considered when the company is valued.

So the long answer is yes, the bankruptcy will have a significant impact on this business whether there is value in the company or not as the trustee will be obligated to realize on both the loan and any value that exist in the shares.